Conventional Loans

What are Conventional Loans?

Conventional Loans are mortgage loans that are not insured by the government (like FHA, VA, USDA Loans), but they typically meet the lending guidelines that have been set by Fannie Mae or Freddie Mac. Typically, conventional loans have better rates, terms and/or lower fees than other types of loans. However, conventional loans typically require a borrower to have good-to-excellent credit, reasonable amounts of monthly debt obligations, a down payment of at least 3% and reliable monthly income. Conventional loans are ideal for borrowers with excellent credit and at least a 3% down payment.

Most Common Types of Conventional Loans

Fixed Rate Mortgages: Your rate and payment never change.

Fixed mortgages are available for 10, 15, 20 and 30-year terms and have a fixed rate and principal payment that never change over the life of the loan.

This loan is a good fit for borrowers who plan on living in their home for at least seven years. Generally, the lower the term, the lower the interest rate.

Adjustable Rate Mortgages: After the initial period your interest rate can change once a year.

Adjustable Rate Mortgages (ARM) are available for 30-year terms and have an interest rate that adjusts after a fixed period of time (generally 1-7 years). After the fixed period of time interest rates adjust according to a financial index such as the Treasury Bill or the London Interbank Offered Rate (LIBOR).

This loan is a good fit for borrowers who plan on moving within the fixed period of the ARM or need a lower payment for a couple years anticipating a better financial situation in the future. Generally, the longer the fixed term, the higher the interest rate.

What are the Conventional Down Payment Requirements?

For Purchase transactions Conventional Loans require the home-buyer to put down at least 3% of the purchase price of the home. For a Refinance transaction, most lenders require at least 5% equity in the property. If you don't have enough equity to qualify for a conventional refinance - even if you owe more than your home is worth - you might be eligible for a HARP 2.0 Loan.

What types of property are eligible?

Most conventional loan programs allow you to purchase single-family homes, warrantable condos, planned unit developments, and 1-4 family residences. A conventional loan can also be used to finance a primary residence, second home and investment property.

Find Out if a Conventional Loan is Right for You

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